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Table of Contents
Mercantilism is an economic strategy intended to increase an economy’s exports while reducing its imports. To that end, it encourages colonialism, taxes, and subsidies on commercial products. In order to strengthen state authority at the expense of competing national powers, it encourages government control of a country’s economy.
See the fact file below for more information on Mercantilism, or you can download our 33-page Mercantilism worksheet pack to utilize within the classroom or home environment.
Key Facts & Information
HISTORY
- Throughout the late Renaissance and the early Modern eras, mercantilism rose to become the preeminent school of economic thinking in Europe.
- Early modern Venice, Genoa, and Pisa all displayed signs of mercantilist techniques in their management of the bullion trade in the Mediterranean.
- However, mercantilism was not a formalized school of economic ideas until the Renaissance’s empiricism, which was the first to precisely measure large-scale commerce.
- The “A Short Treatise on the Wealth and Poverty of Nations,” penned by the mercantilist and economist Antonio Serra in 1613, is regarded as one of the earliest works on political economy.
- Bullionism, which is the essence of mercantilism, emphasizes the flow of currency and discourages hoarding.
- Their focus on money metals is consistent with modern theories of the money supply, such as the stimulative nature of an expanding money supply.
- Since then, worries about individual concerns have been irrelevant due to fiat money and variable exchange rates. In time, industrial policy took the place of a strong emphasis on money, and the emphasis shifted from being able to wage wars to being able to promote overall prosperity.
- The mature idea of neomercantilism advocates promoting national economic specialization or selectively imposing high tariffs on “infant” industries to encourage the mutual progress of nations.
- The Elizabethan Period (1558–1603) saw the start of the first extensive and comprehensive mercantilist strategy in England.
- “We must constantly be careful not to purchase more from strangers than we sell to them in order to prevent ourselves from becoming poorer and them from becoming richer,” reads a 1549 passage on the national balance of trade in Discussion on this Realm of England’s Commonwealth.
- During this time, Queen Elizabeth’s court made a number of, often uncoordinated, attempts to build a naval and commercial fleet that would be able to counter the Spanish dominance of commerce and boost domestic bullion production.
- In order to safeguard and advance English commerce, Queen Elizabeth ordered her fleet to support the Trade & Navigation Acts in Parliament.
- The theory was used by several countries, most notably France. From 1665 until 1683, Jean Baptiste Colbert served as King Louis XIV’s Controller-General of Finances. He was in power from 1643 to 1715.
- It was decided that the state should have the same authority over commerce as it had over diplomacy and that the king’s assessment of the interests of the state was superior to those of merchants and everyone else.
- Particularly in an era of constant conflict, mercantilist economic policies sought to enhance the state, and theorists tasked the state with finding ways to both develop the economy and undermine foreign foes.
THEORY
- Today, the majority of European economists who published between 1500 and 1750 are regarded as mercantilists. Although the phrase was first coined by critics like Mirabeau and Smith, historians embraced it quickly.
- The original English title for this concept was “mercantile system.” Early in the 19th century, the word “mercantilism” was introduced to English from German.
- The majority of what is referred to as “mercantilist literature” first emerged in Great Britain in the 1620s. Smith saw the posthumously released Treasure through Foreign Trade (1664), which he regarded as the template or manifesto of the movement, by the English trader Thomas Mun (1571-1641) as a vital contributor to the development of the commercial system. James Steuart’s Principles of Political Economy, which was published in 1767, was possibly the final significant book of mercantilism.
- More desperate than its trade strategy was mercantilism domestic policies. Many mercantilists disagreed with Adam Smith’s portrayal of mercantilism as supporting strong economic regulations.
- Early modern times were characterized by government-imposed monopolies and letters patents; some mercantilists favored these practices, while others saw the corruption and ineffectiveness of such systems.
- Many mercantilists also understood that illicit markets were a natural outcome of quotas and price caps.
- The idea that the working class ought to be economically oppressed and forced to live on the “margins of subsistence” was one that mercantilists mostly agreed upon.
- With regard to consumption, the objective was to maximize production. It was believed that extra money, leisure time, and education for the lower classes would surely end in vice and sloth and damage the economy.
- A large population was viewed by mercantilists as a source of riches that enabled the growth of larger markets and armies. The physiocrat’s philosophy, which held that humankind would overrun its resources, was in opposition to mercantilism.
- The goal of mercantilism was to preserve agriculture and the people who relied on it while also protecting the markets.
POLICIES
- In the early modern era, mercantilist principles dominated all of Europe’s economic thought, and most nations, to some extent, adopted them. Since mercantilism was concentrated in England and France, mercantilist policies were most frequently implemented in these countries.
The regulations have covered the following:
- Excessive taxes, particularly on manufactured items.
- Prohibiting trade between colonies and other countries.
- Staple ports that control marketplaces.
- Prohibiting the export of precious metals, even for payment.
- Prohibiting commerce on foreign ships, for instance, in accordance with the Navigation Acts.
- Export incentives.
- Supporting manufacturing and business with research or financial aid.
- Setting wage caps.
- Making the best possible use of domestic resources.
- Limiting domestic consumption through trade obstacles that are not tariffs.
MERCANTILISM IN FRANCE
- Mercantilist Jean-Baptiste Colbert served as France’s finance minister for more than 20 years.
- Early in the 16th century, France experienced the rise of mercantilism as the monarchy lost its grip on the country’s politics.
- A significant order outlawed the import of woolen items from Spain and certain regions of Flanders in 1539. The export of bullion was subject to a variety of limitations the following year.
- Additional protectionist regulations were put in place during the rest of the 16th century. Since Jean-Baptiste Colbert served as France’s finance minister for 22 years during the 17th century, the period during which French mercantilism was at its height is sometimes referred to as Colbertism.
- To boost exports, the French government heavily intervened in the economy under Colbert. Protectionist laws that restricted imports and promoted exporters were put into place. A series of more than a thousand directives defining the proper methods for producing various goods were used to control production and organize industries into guilds and monopolies.
- Foreign artisans and craftspeople were imported to promote the industry. Colbert also tried to lower trade obstacles inside countries by lowering internal tariffs and constructing a vast network of roads and canals.
- France’s industrial production and economy developed significantly during this time as a result of Colbert’s strategies, which were extremely effective as France rose to prominence as the leading European power.
- He had little success making France a significant trade force; in this regard, England and the Dutch Republic continued to rule.
MERCANTILISM IN NEW FRANCE
- French colonies in North America, notably New France, were forced to adhere to its mercantilist doctrine. With the least amount of colonial investment in the colony itself, it aimed to obtain the most possible material advantage from the colony for the country.
- The idea was implemented in New France through the creation of many corporate trading monopolies under the Royal Charter, such as La Compagnie des Marchands, which ran from 1613 to 1621, and the Compagnie de Montmorency, which ran from that point until 1627.
- King Louis XIII established La Compagnie des Cent-Associés in 1627, and the Communauté des Habitants was established in 1643 to succeed it.
MERCANTILISM IN GREAT BRITAIN
- In England, mercantilism peaked during the Long Parliament (1640–60) period of rule.
- The majority of the Tudor and Stuart eras likewise supported mercantilist policies, with Robert Walpole serving as another influential proponent.
- In Britain, common law and Parliament’s constantly growing power kept the government’s influence over the domestic economy far more constrained than it was on the Continent.
- Before the English Civil War, government-controlled monopolies were widespread but frequently contentious.
- In terms of its colonies, British mercantilism meant that, to the exclusion of other European powers, the government and the merchants partnered with the aim of boosting political power and individual riches.
- In order to increase exports from and decrease imports into the realm, the government protected its merchants—and kept foreign ones out—through trade barriers, laws, and subsidies to local businesses.
- Smuggling, which in the 18th century became a preferred American method to get over trade constraints with the French, Spanish, or Dutch, had to be combated by the government.
- The objective of mercantilism was to generate trade surpluses for the benefit of the state.
- The balance went to British merchants, with the government keeping its portion through customs and taxes.
- The Royal Navy, which both safeguarded British colonies and played a key role in conquering those of other European powers, received a large portion of government spending money.
- British mercantilist authors disagree among themselves over the necessity of home restraints.
- British mercantilism, therefore, mostly manifested itself in attempts to regulate commerce. A wide range of rules were implemented to promote exporters and prevent imports.
- Imports were subject to tariffs, exports were rewarded with bounties, and the export of some raw commodities was outright prohibited.
- The Navigation Acts prohibited foreign merchants from engaging in domestic trade in England. British mercantilist practices (such as prohibiting commerce with other European countries and enforcing restrictions on smuggling) were a key irritation leading to the American Revolution and caused tension with the citizens of the Thirteen Colonies.
- According to mercantilism, trade is a zero-sum game in which a gain for one country equals a loss for its trading partner.
- Overall, though, mercantilist practices benefited Britain and helped it develop into a worldwide hegemon and the world’s dominating trade power.
- The conversion of “wastelands” to agricultural use was one domestic policy that had a long-lasting effect.
- The Fens were drained during this period because mercantilists felt that in order to enhance a nation’s might, all land and resources needed to be exploited to their highest and greatest advantage.
END OF MERCANTILISM
- The founders of anti-mercantilist thinking were David Hume, Edward Gibbon, Voltaire, Adam Smith, and Jean-Jacques Rousseau.
- Long before Smith created a philosophy that could completely replace it, a number of academics identified serious shortcomings in mercantilism.
- Many aspects of mercantilism were criticized by authors like Hume, Dudley North, and John Locke, and over time, it lost popularity in the 18th century.
- Locke stated that prices change in direct proportion to the amount of money in 1690. The anti-mercantilist critique’s central tenet—that human work, as symbolized by Locke’s labor theory of value, creates wealth rather than fixing it—is also addressed in his Second Treatise.
- The concepts of absolute advantage, comparative advantage, and the advantages of trade were not understood by mercantilists, despite the fact that David Ricardo just completely developed this concept in 1817.
- The classic observation made by Hume was that the mercantilists’ pursuit of a consistently positive trade balance was impossible.
- The supply of bullion would rise as it entered a country, and as a result, its value in relation to other things would gradually decrease.
- On the other hand, if the state exported bullion, its value would gradually increase. Exporting products from the high-cost country to the low-cost country would eventually become unprofitable, and the trade balance would turn around.
- This was profoundly misinterpreted by mercantilists, who for a long time maintained that a rise in the monetary supply simply indicated that everyone became richer.
- Even while many mercantilists themselves had started to downplay the significance of gold and silver, the emphasis put on bullion was nevertheless a major target.
- The widespread error of equating prosperity with money was at the basis of the commercial system, according to Adam Smith, who also highlighted that bullion was no different from any other product and shouldn’t receive any special treatment. Scholars have since disputed the validity of this criticism.
- They point to the supporters of Josiah Child and Charles Davenant, who wrote in 1699.”In reality, trade is measured in terms of gold and silver, but in every country, the beginning and origin of trade is the natural or artificial product of the country, i.e., what this land or what this labor and industry produces as evidence”
- The French physiocrats, who established their views, were the first school to oppose mercantilism outright. The publication of Adam Smith’s The Wealth of Nations in 1776 superseded mercantilism, which had a lot of serious problems and was also one of its main beliefs.
- The fundamentals of what is now referred to as classical economics are described in this book. Although the mercantilists’ arguments are sometimes oversimplified or overstated, Smith spent a significant amount of the book refuting them.
- Researchers disagree about what led to the demise of mercantilism. According to those who think it was just a mistake, the notion had to be replaced as soon as Smith’s more precise theories were made public.
- People who believe that mercantilism was essentially rent-seeking assert that it only stopped when there were significant changes in power.
- As the Parliament seized the monarch’s authority to issue monopolies, mercantilism in Britain began to decline. These monopolies benefited the affluent capitalists who dominated the House of Commons, but Parliament found it challenging to put them into action due to the high cost of collective decision-making.
- In Britain, mercantilist restrictions were gradually lifted throughout the course of the 18th century. In the 19th century, the British government fully embraced free trade and Adam Smith’s laissez-faire economics.
- On the continent, the process differed greatly. The French royal family retained control over the nation’s economy up to the French Revolution. Mercantilism was still a major philosophy in Germany late in the 19th and early 20th centuries, when the historical school of economics was in vogue.
Mercantilism Worksheets
This fantastic bundle includes everything you need to know about Mercantilism across 33 in-depth pages. These ready-to-use worksheets are perfect for teaching kids about Mercantilism. Mercantilism is an economic strategy intended to increase an economy’s exports while reducing its imports.
Complete List of Included Worksheets
Below is a list of all the worksheets included in this document.
- Mercantilism Facts
- Merchant Quest
- Name the Files
- Tracing the Roots of Mercantilism
- Match-Up, Complete the Table
- Mercantilism v.s Free Trade
- Key Empires
- Draw your Understanding
- Are you Pros Or Cons
- Photo Analysis
- Watch Online Report On Cam
Frequently Asked Questions
What is Mercantilism?
Mercantilism is an economic theory and system that was popular in Europe from the 16th to the 18th centuries. It advocated for a nation to achieve a positive balance of trade by exporting more than it imports in order to accumulate wealth and power.
What were some of the key features of Mercantilism?
Some key features of Mercantilism included protectionism, which involved imposing tariffs and quotas on imported goods to protect domestic industries; colonialism, which involved the establishment of overseas colonies in providing raw materials and markets for manufactured goods; and the accumulation of gold and silver, which was seen as a measure of a nation’s wealth.
What were some of the criticisms of Mercantilism?
Some of the criticisms of Mercantilism included that it was a zero-sum game in which one nation’s gain came at the expense of another’s loss, that it led to economic inefficiencies and rent-seeking behavior, and that it inhibited international trade and cooperation.
Which European countries were associated with Mercantilism?
Mercantilism was associated with several European countries, including Spain, Portugal, France, and England.
What was the impact of Mercantilism on global trade and economic development?
The impact of Mercantilism on global trade and economic development was mixed. While it encouraged the growth of domestic industries and the accumulation of wealth, it also led to protectionism, colonialism, and conflicts between nations. Additionally, the focus on accumulating gold and silver was criticized for promoting a static view of wealth rather than promoting economic growth and development.
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